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SEC Approves Revision to FINRA Rule Regarding Broker Dealer FINRA Filing Requirements for Private Placement Offerings

On June 7, 2012 the SEC granted accelerated approval to a FINRA rule change regarding broker dealer FINRA filing requirements for activities associated with private placement offerings.  The rule was originally drafted to address disclosures that must be provided to investors prior to an investment and disclosure that must be provided to FINRA following a sale in a private placement, regarding use of proceeds, the amount and type of offering expenses, and all offering related compensation to be paid to placement agents, finders, associated persons and the like.

Summary of Rule Change

FINRA Rule 5123 (Private Placements of Securities) has been amended to require that each FINRA member firm that participates in a private placement of securities file with FINRA a copy of any private placement memorandum (PPM), term sheet, or other offering document used in connection with a sale, within 15 days of the date of the first sale and any material amendment thereto, or provide a notice to FINRA within the same time period, that no such documents were used.  Prior to the amendment there was no requirement on behalf of a FINRA member firm to file offering documents and other disclosure documents with FINRA.

The Rule broadly defines a private offering as any offering exempt from the registration requirements.  It will be interesting to see the interplay between this new rule and the new Rule 4(6) crowdfunding exemption.

The Rule 5123 amendment also added numerous exemptions to the new disclosure and filing requirement based on the accreditation and sophistication of the investor.  The Rule, however, does not exempt offerings made to all accredited investors, but rather highly accredited, institutional and QIB type investors.


The proposed rule change was first published by FINRA in January 2011 and, in an amended form, by the SEC for comment on October 24, 2011.  The original proposed rule change was much broader in scope and was actually amended three times and republished for comment prior to being approved on June 7, 2012.   In addition to many other provisions, the original proposed rule change imposed filing and disclosure documents on all FINRA member firms and associated persons who not only participated in an offering itself, but in the preparation of offering related documents such as a private placement memorandum (PPM) or term sheet.  The proposed rule required FINRA members to actually prepare documents providing disclosures related to use of proceeds, the amount and type of offering expenses, and all offering related compensation to be paid to placement agents, finders, associated persons and the like if the such information was not already in the disclosure documents prepared by the Issuer.

Following numerous negative comment letters, the rule was narrowed to its present form.

The Author

Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions

Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the over the counter market including the OTCBB and OTCQB. For almost two decades Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.

Ms. Anthony’s focus includes but is not limited to crowdfunding, registration statements, PIPE transactions, private placements, reverse mergers, and compliance with the reporting requirements of the Securities Exchange Act of 1934 including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SRO’s such as FINRA and DTC for corporate changes such as name changes, reverse and forward splits and change of domicile.

Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.

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Tags: FINRA Filing Requirements, FINRA Rule 5123, Rule 4(6) crowdfunding exemption, Private Placement Memorandum, Crowdfunding, Crowdfunding Portals, SEC Attorney, SEC Law Firm

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